(By Kevin Donovan) By all accounts the Tesla roadster is one sweet ride – if you could only get one. The electric car manufacturer headed by charismatic CEO Elon Musk reported production shortfalls this week and disclosed a plan to offer more equity to ease a cash crunch. The news sent outstanding shares sharply lower, creating what we think is a buying opportunity.
Even after the stock price decline, shares remain pricey, trading at about 60 times next year's earnings estimates. Growth potential is obviously still baked in the cake, and we like the odds Tesla can survive, although any position should be considered speculative.
Adding to our enthusiasm is the significant short position in Tesla stock (TSLA), which could trigger a short-covering rally if short sellers perceive a bottom. Tesla shares have traded between 22.64 and 39.95 in the last 52 weeks. The stock closed at $27.54 Wednesday.
The good news is that Tesla places much of the blame for the shortfall on the supply side, not demand. Presumably, if suppliers can be brought up to speed, more of the sleek vehicles can be delivered to exasperated customers before they cancel orders.
In an 8-k filing with the Securities and Exchange Commission, Tesla said its focus on quality has meant that production has increased "at a rate slower than we had earlier anticipated." The company added that "certain suppliers have experienced delays in meeting our demand and we continue to focus on supplier capabilities and constraints."
As of September 23, Tesla had produced a total of 255 Model S vehicles, 132 delivered to customers, and that it expects to produce more than 300 vehicles in the third quarter, reaching its weekly production target of 400 Model S vehicles before the end of 2012, which should enable the company to produce more than 20,000 Model S vehicles in 2013. It expects to deliver between 200 and 225 Model S vehicles to customers in the third quarter and between 2,500 and 3,000 Model S vehicles in the fourth quarter. That schedule is about four to five weeks behind previous delivery goals for 2012.
"To increase the rate of production of Model S, we have taken a number of actions, including working with suppliers to help improve quality and timely delivery of parts, adding automation and second shifts in certain manufacturing areas, increasing training of our manufacturing staff to improve manufacturing processes, and making changes to personnel in our quality control department. We anticipate, however, that manufacturing and supplier issues will continue to arise and need to be addressed in a timely manner," the SEC filing states.
Tesla said that net of deliveries it has orders of about 13,000, up from 11,500 at the end of the second quarter. It expects the cancellation rate to decrease as it shortens the time between order and delivery. (Bloomberg reported 12000 cancellations)
To meet liquidity needs and the repayment of a government loan, Tesla aims to sell 4,344,930 new shares of its common stock.